Modernizing America's Payments System to Lower Costs and Increase Competition

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Penny Lee is the President and CEO of the Financial Technology Association (FTA), a trade association representing fintech industry leaders shaping the future of finance. FTA champions the power of technology-centered financial services to drive innovation, competition, and inclusion. Penny has more than 20 years of experience advising public officials, Fortune 500 companies, enterprising startups, and non-profits with strategic positioning, political strategy, brand identity, and advocacy.

As Members of the 119th Congress and the Trump Administration take office, they have an opportunity to overhaul, rework, reform, and take the country in a new direction. They should start with our mindset toward the policies governing emerging technologies – particularly financial technology – which is ripe for this kind of rethinking.

If you’ve ever paid bills, sent money, accessed your wages, or funded your business with a few taps on your phone, you’ve felt the power of digital innovation. Yet, behind these advances lies a stubborn truth: America’s financial laws remain stuck in the past. Despite the fact that three in four Americans use mobile payment services, these fintechs still cannot independently settle transactions.^[1] 

Consider this: banks only pay a fraction of a cent (0.35¢) to send payments^[2], but they often charge fintechs significantly more to settle transactions. For consumers and businesses, this isn’t just an inconvenience – it’s a barrier that limits competition and drives up consumer costs. We need a new approach. The lack of direct access for payment companies slows down paychecks, delays bill payments, and hinders entrepreneurs who are trying to run their businesses in real time.

It also holds America back. While other countries like the U.K., Brazil, and Australia have embraced modern systems that process payments instantly and around the clock, most Americans are left waiting. Surveys show that people want businesses like banks and financial services providers to operate beyond the traditional nine-to-five.^[3]

That’s why modernizing our payment system to reflect the digital transformation should be a top priority, along with embracing innovation and reversing harmful regulations that impede progress. As Congress considers legislation on the future of payments, granting non-bank access to the Federal Reserve must be on the table. The time to create an optional non-bank federal payments charter is now. 

America is Falling Behind

If you travel abroad, the contrast is striking. In Singapore and India, small businesses can send and receive money instantly. In the EU, consumers enjoy open banking innovations that make payments cheaper and more efficient. In Brazil and the U.K., non-bank entities can access real-time payment networks. Meanwhile, in the U.S., even new initiatives like FedNow – a step toward faster payments – are only accessible to banks. This leaves millions of fintech consumers (82% of Americans rely on digital payments) and small businesses potentially relying on outdated and costly systems that fail to meet their needs.^[4]

By including non-bank companies directly in initiatives like FedNow – and more broadly providing access to Federal Reserve clearing and settlement services – we can speed the adoption of faster payments through the cutting-edge interfaces provided by fintechs.^[5]

The Next Step: An Optional Federal Payments Charter

It’s time to bring America’s financial infrastructure into the 21st century. An optional federal payments charter would allow non-bank payment providers to connect directly to the Federal Reserve settlement and clearing system. This would reduce costs, speed up transactions, and drive competition across the payments ecosystem. The charter would complement, not replace, state money transmitter frameworks, and allow participation in credit card networks.

Furthermore, it would include tailored regulatory requirements and supervision specific to the risks of payments companies, as opposed to deposit-taking banks, similar to the charters established in other jurisdictions. In particular, a firm receiving this charter would be authorized to provide payment services but not engage in long-term maturity transformation. It would also be supervised at the entity level for adequate safeguarding of high-quality liquid assets, a resolution process that provides customers with priority claims over other creditors, and risk-based regulatory capital sufficient to withstand business model credit risk, market risk, and operational risk. 

Such a charter would complement existing state requirements. Currently, state payment frameworks include minimum net worth (i.e., capital) requirements to mitigate the risk that a payment company may fail in an economic or other stress scenario. They also include “permissible investment” (i.e., liquidity) requirements whereby the company must fully back all regulated customer liabilities with high-quality, liquid assets. State frameworks also include consumer receipt and other disclosure requirements, and periodic transaction and financial condition reports, as well as periodic supervisory exams, to allow state regulators to oversee payments companies and address any emerging risks. The combined framework of existing (and improving)^[6] state law and a federal payments charter would comprehensively address the risks that payment activities pose to consumers.

Some argue that fintech companies should simply become traditional banks. But that misses the point. Many fintechs partner with banks in a robust, secure, and well-regulated manner to provide innovative, low-cost services. Many payment companies specialize in services like cross-border payments, payment processing, or expense management and have no interest in offering traditional banking services like making loans. What is more, regulators have historically appeared reluctant to approve new charters, with only a handful of new bank charters granted in the past decade.^[7] 

An optional charter would offer another tailored solution: robust oversight without forcing non-banks to take on new activities that increase maturity transformation risks and to fit into a banking framework that doesn’t align with their services. This approach would build on existing state and federal regulations, ensuring strong consumer protections while fostering innovation. It would also complement a well-functioning bank-fintech partnership ecosystem that delivers valued services to consumers, small businesses, and entrepreneurs. 

A Vision for the Future 

Picture not having to wait for a check to clear before you can pay for an urgent expense, being able to settle business payments in real-time, without delay, or making an instant payment to a friend or family member abroad. Congress and the new Administration have a unique opportunity to make this vision a reality. By modernizing the U.S. payments system and creating a more level playing field, we can drive competition, increase access, and lower costs for consumers, small businesses, and startups alike.

The digital revolution in finance is here. Now, it’s time for our laws and infrastructure to catch up. Let’s make faster, fairer, and more accessible payments a reality for all Americans.

The opinions shared in this article are the author’s own and do not reflect the views of any organization they are affiliated with.

^[1] The Federal Bank of Atlanta, “2023 Survey and Diary of Consumer Payment Choice: Summary Results,” (June 3, 2024),

^[2] The Federal Reserve, “FedACH Services 2024 Fee Schedule”

^[3] SWNS, “Why 9-to-5 businesses do not meet Americans’ local necessities,” (June 20, 2024)  

^[4] McKinsey, “New trends in US consumer digital payments,” (October 26, 2021)

^[5]  While FedNow doesn’t yet support cross-border payments, non-banks should also be core participants in initiatives to speed up those payments and make it easier to send money internationally to friends, family, or business partners. See Bank of International Settlements, “Private sector partners join Project Agorá,” (September 16, 2024). See also The Clearing House, “Immediate Cross-Border Payments (IXB) Pilot Set to Revolutionize International Payments,” (October 5, 2022)

^[6] Of note, FTA has supported adoption of the Conference of State Bank Supervisors Money Transmission Modernization Act, which seeks to harmonize divergent state laws.

^[7] Statista, “Number of new FDIC-insured commercial bank charters in the United States from 2000 to 2023,” (April 2, 2024)

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